Mark Ritson
Mark Ritson
A view from Mark Ritson

Mark Ritson on Branding: bollocks to Twitter and bollocks to it being worth one billion dollars

The latest round of investment in Twitter is redolent of the period leading up to the dotcom bust.

I started as a professor in the late 90s. I was young, inexperienced and terrified of the MBAs I was now paid to teach. So when the dotcom revolution started, I watched as my best students at London Business School rejected enormous starting salaries from McKinsey and Deutsche Bank in favour of working for start-ups I had never heard of.

The whole thing seemed totally mad, but I held my tongue and assumed they knew something that I did not. It was only after the dotcom bubble burst and so many of my former students had lost their jobs, savings and several years on the career ladder that I realised I should have said something.

A decade later, and we are off again with Twitter. The privately held company received a new round of investment last week, believed to be $100m, which values the business at a whopping $1bn (£624m). That makes Twitter roughly as valuable as WH Smith - which provides an excellent point of comparison.   

WH Smith has done well this year. Its annual revenues are likely to be about £1.3bn, and most analysts are expecting those revenues to result in pre-tax profits of about £80m. Over at Twitter, for all its glorious PR and amazing technological impact, there is nothing. Not a cent. Because Twitter does not charge for its service.

What's more, Twitter's 60 employees have yet to explain how the website plans to make money in the future. Thus far it seemingly has no business model. If I were plonking down hundreds of millions of dollars for a share in a company, I'd want to know how it intends to, er... make money.

I'd also take a long hard look at the consumer data. Last year, Twitter grew by 422%, and that growth also continued into this year. Right now, Twitter has 54m visitors, which is significantly more than the 43m who regularly visit WH Smith. However, the high-street retailer has two big advantages over Twitter. First, its visitors spend money. Second, unlike Twitter, for which only 40% of visitors become repeat users, most of WH Smith's customers keep coming back. On average, each of those 43m customers returns 10 times a year to buy again. That's a far more important statistic than how many people use your free service once.

If I had $100m invested in Twitter, I'd be worried about slowing growth in visitor numbers when the service is still free - especially in the US, where use flatlined in the last quarter.   

If you believe the hype, Twitter is the future of media and marketing. John Borthwick, chief executive of web investor Betaworks, told The New York Times last week that Twitter 'represents a next layer of innovation on the internet', and that the investment was justified 'because it represents a shift'. Ten years ago, I would have gulped, assumed I was missing something, and nodded my head at this.

These days I am older, fatter and a good deal wiser, and I say (in fewer than 140 characters): bollocks to Twitter. And bollocks to it being worth a billion dollars.

I do know one radically innovative company worth a billion dollars. It is a retailer that grew along the British railways as the world's first chain store. It invented a universal coding system to sort the books it sold, and which became the internationally recognised ISBN numbers now used by everyone. The name of this hot, radical company is WH Smith, and it is worth a billion dollars because, aside from innovation, it has something that Twitter has yet to achieve: paying customers who keep coming back for more.  

Mark Ritson, PPA columnist of the year (business media), is an associate professor of marketing and consultant to some of the world's biggest brands

30 seconds on dotcom brands and their valuations

  • When NewsCorp bought MySpace in 2005 for $580m, many viewed it as a stroke of genius. Four years on, the deal looks less great. Growth has dried up and MySpace is still losing money.
  • In the same year, eBay bought Skype for $3.1bn. It paid $1.3bn in cash and $1.3bn in stock for the online comm-uni-cations company - and then a further $530m to its founders. eBay is now faced with legal action from Skype's inventors, and recently sold the bulk of the service, for $1.9bn, to private investors.
  • YouTube was bought for $1.65bn by Google in 2006. It has lost money ever since, and has so far failed to create an environment for lucrative professional video content.
  • Russian internet-investment group Digital Sky Technologies has offered $200m for a 2% stake in Facebook. The investment implies a value for the social networking site of $10bn - down significantly from the $15bn valuation that was suggested by Microsoft's initial $240m investment in 2007.